The last couple of years have seen quite a fundamental change in this Wythenshawe, Manchester-based group’s profile. 

Strategically it has acquired four new subsidiaries this year, at a cost of some £11.3m plus earn-outs.

But then change has been a way of life for £16m capitalised Coral Products (LON:CRU).

The interim results for the six months to end October clearly identify that the group has been investing in growth, both organically and through acquisition.

The big change is now on its way.

The business today

From its base in 1989, when it was serving the VHS market with a wide range of video cassette cases, the company listed in 1995 and switched to AIM in 2011.

Today Coral Products is a manufacturer and distributor of plastic products supplied into a diverse range of sectors. As a group of seven companies, it has extensive capabilities within profile, tube and sheet extrusion, injection moulding, vacuum forming, butt fusion, mirror welding, fabrication, and assembly. 

The seven subsidiaries

Tatra Rotalac is a leading plastic extrusions manufacturer providing custom extrusions, PVC profiles and injection mouldings for the building, telecoms, aerospace and rail sectors.

Global One Pak is a leading provider of own designed lotion pumps, closures and trigger sprayers, supplier to many well-known brands like Tesco, Asda-Walmart, M&S, and WD40.

Customised Packaging specialises in the manufacturing of plastic products using thermoforming and sheet extrusion technology.

Film & Foil Solutions is one of the UK’s largest converters and stockists of flexible film packaging films, print lamination films and speciality plastics, paper and aluminium foils.

Alma Products specialises in extrusion, thermoforming and container printing.

Manplas provides a custom manufacturing service for the production of vacuum-formed components and sheet plastic parts. 

Ecodeck recycles 10,000 tonnes of waste plastic per annum into sustainable and environmentally eco-friendlygarden and landscape construction products.

Ready to attract institutional investors

With some 97.6m shares in issue, Executive Chairman Jo Grimmond holds 7.66% of the equity, while other directors hold 6.78%.

Professional investors include Lombard International Assurance (5.71%), Diverse Income Trust (2.90%), Peter Gyllenhammar AB (2.80%), and Rights & Issues Investment Trust (2.38%).

Two private investors have notable holdings – John Wright (5.84%) and Ian Hillman (5.76%).

As this group builds up, I would expect it to become more attractive to smaller company fund managers.

The interims

The half-time results reported that the group’s sales had risen 147.9% to £17.6m, while its reported pre-tax profits put on 75.3% to £894,000. Its underlying EBITDA was 85.5% better at £1.88m, with underlying earnings put on 44.4% to 1.17p per share. The interim dividend was unaltered at 0.50p per share.

As part of its capital expenditure programme the group has committed £2.5m for new injection moulding machines, specific tooling and it has reconfigured some 5,000 sq.ft of warehouse space into extra manufacturing capacity.

Group property has been revalued to £3.2m, while net cash at the interim stage was £3.8m, showing an overall strong net asset position.

The group has fixed energy costs until 2025, while margin improvements should be seen in the second half.

Executive Chairman Joe Grimmond stated that: “These excellent results reflect our ongoing investment in future growth. Our objective is to build a specialist UK plastics business of scale, targeting profitable, high-demand sectors. We aim to drive growth both organically and via acquisitions, whilst maintaining our commitment to sustainable objectives……Like all businesses, we are mindful of the challenging economic environment, nevertheless, we believe Coral is in a good position going forward and we have yet to show the full benefit of our investments to date.”

Analyst Opinion – ‘fair value’ 21.6p a share

Edward Stacey at Cenkos Securities rates the group’s shares as a Buy.

His estimates for the current year to end April are for revenues of £34.6m (£14.4m), with adjusted pre-tax profits of £1.7m (£1.3m), lifting earnings up to 2.1p (1.5p) and a dividend of 1.2p (1.1p) per share.

For the coming year he sees £41.9m sales, £2.3m profits, 2.5p earnings and 1.3p of dividend per share.

Conclusion – I see them touching 25p in 2023

After speaking to boss Jo Grimmond at length on these figures I am convinced that he has ‘shaped’ up his group very well to grow over the next few years.

As investor interest builds up gradually ‘smallco funds’ will get aboard, taking the equity up to considerably more flexible ratings.

The shares, now at just 17.5p, are clearly heading higher, with 25p being an easy level at which to aim in 2023.

Caracal Gold have secured an additional funding to expand the Kilimapesa Gold Mine in Kenya through a non-dilutive pre-paid gold purchase agreement.

A $3m financing facility has been made available to be drawn on before 31st December 2022 and add to a similar agreement for $10.5m announced in late November.

Caracal are now fully-funded to complete the expansion Kilimapesa Gold Mine with the aim of increasing both production and the resource.

“This second non-dilutive financing further strengthens Caracal’s cash position bringing the total raised in the last two weeks to US$13.5m,” said Robbie McCrae, CEO of Caracal Gold.

“Attracting these two new high-calibre partners, OCIM and Philoro, is testament to the vast potential Caracal offers as it focuses on becoming a +50,000oz per annum producer with +3moz in resources.

“We can now concentrate on the final push to deliver on our initial production target of 24,000oz per annum, whilst continuing to advance our regional exploration efforts in Kenya to ultimately build the life of mine and value potential. Alongside this, we are excited by the development opportunity Nyakafuru in Tanzania offers and look forward to progressing our targeted exploration programme to support a Preliminary Economic Assessment.”

Gulf Marine Services – even with bad weather the use rates are higher and day rates better 

Despite some unfavourable weather conditions and options on contracts not having been exercised, in its latest Trading Update the Abu Dhabi based provider of advanced self-propelled self-elevating support vessels is projecting higher utilisation rates for this year.

Young flexible fleet

The group’s fleet of 13 SESV’s serves the oil, gas and renewable energy industries in the Middle East, West Africa, Europe, South-East Asia, the Gulf of Mexico and North America. The fleet is amongst the youngest in the industry.

The vessels are four‐legged and are self‐propelled, which means they do not require tugs or similar support vessels for moves between locations in the field, making them significantly more cost‐effective and time‐efficient than conventional offshore support vessels without self‐propulsion.

The vessels support GMS’s clients in a broad range of offshore oil and gas platform refurbishment and maintenance activities, well-intervention work and offshore wind turbine maintenance work, as well as offshore oil and gas platform installation and decommissioning and offshore wind turbine installation.

Higher utilisation and better day rates

For the year to the end of this month the group is guiding that its use rate will be 2% higher this year at 87%, against 85% last year.

Better still the group’s day rates on average are up 7% on last year’s figures.

Demand is stronger

The group’s Executive Chairman Mansour Al Alami stated that:

“Our markets continue to improve, and demand remains strong, as reflected by the increase in utilisation and day rates seen in recent contract wins. These contracts, for work in the Gulf and North Sea (Firm + Options), increased our backlog to US$378 million. Our focus remains on deleveraging and on delivering Operational effectiveness for the remainder of this year and into 2023.”

In early November the group announced that it had been awarded two new contracts and one contract extension, equating to 78 months of utilisation, increasing both its overall fleet backlog and its secured revenue.

Analyst opinion

Daniel Slater at Arden Capital has rated the group’s shares as a Buy.

He is looking at a 20p Target Price compared to the current 5.8p.

The Arden Capital estimates for the current year to end December suggest $135.4m of revenues ($115.1m), while adjusted pre-tax profits could come in at $32.8m ($20.7m), with earnings of 2.5c (2.7c) per share.

The analyst suggests that his estimates for the coming year figures are for $143.6m sales, $39.6m profits and 3.1c earnings per share.

Conclusion

The recent contract awards will solidify the GMS financial position going into 2023 and reflect positively on its future prospects.

The group’s shares, now just 5.8p, were trading at around the 7p level in mid-August and could well be very much higher than that within the next year.

The FTSE 100 has been driven by events in China over the past month as the anticipation of a reopening buoyed markets.

With Chinese equities surging overnight as China relax restrictions, one would have assumed the FTSE 100 follows suit.

“The Hang Seng is once again at the centre of all the action on the stock market with a 2.3% jump to 19,900. Much of the gains were down to ongoing optimism around more relaxed Covid restrictions which might lead to greater economic activity,” said Russ Mould, investment director at AJ Bell.

However, the optimism in China didn’t spill over into the European session to the extent investors may have hoped for, with the FTSE 100 flat at the time of writing. The China-exposed companies swept up in optimism around an economic reopening were instead influenced by industry-specific developments on Friday.

Anglo American caution

The positive news in China has been most pronounced in the FTSE 100’s miners but the sector was today held back by a cautious tone struck in an Anglo American investor update.

“As we have built operational momentum in the second half, we have also moderated our near term production growth plans with a clear priority to deliver a stable platform from which to build strengthened and repeatable performance,” said Duncan Wanblad, Chief Executive of Anglo American.

Anglo American’s comments suggested they foresee softer conditions in the market, sending their shares 2% lower. Glencore and Antofagasta also fell.

Oil weaker

The FTSE 100 oil majors were also a major drag as oil finished a tough week in the red as traders positioned for lower demand in the coming months. BP and Shell were down 1.7% and 1.2% respectively.

“The oil price is set for sharp weekly losses as Brent crude futures stabilise around $77 a barrel, as renewed recession fears take hold. The concerns around a global slowdown are outshining optimism from the relaxation of zero-Covid policies and China,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

“The international Brent benchmark is down around 10% this week, which also reflects a slew of comments from US top executives about the incoming recession.”

Ocado

Ocado was one of the FTSE 100’s top risers as investors prepared for a trading update from the retail technology next week. Ocado shares have been on a rollercoaster ride of late and the trading statement could add to the choppiness.

BP shares are up 43% in 2022 after the tragedy in Ukraine saw oil prices smash through $100 and provide oil majors such as BP with extraordinary profits.

BP experienced a huge jump in their margins as revenue surged in the second and third quarter of 2022. Margins started to decline in Q3 in line with oil prices, and this has capped BP shares.

Nonetheless, BP shares are 38% higher in 2022 and are considerably higher than 2020 lows.

The BP share price pandemic lows around 190p seem a distant memory with shares now trading at 456p. So, after such a strong rally over the past 18 months, are BP shares a buy for 2023?

BP RC Profit

To better represent the costs and profitability of holding and managing oil inventories, BP uses Underlying Replacement Cost (RC) Profit as a gauge of operating activity. BP’s Underlying RC profit surged to $22.8bn in the first nine months of 2022, compared to $8.8bn in the same period a year prior.

This reflects higher oil prices, but does not provide a full picture of BP’s finances in 2022.

BP Profit Efficiency

BP have enjoyed windfall profits as a result of external factors. Their higher operating profitability was achieved not by BP’s design, but the geopolitical landscape in Europe. To judge how efficiently these profits were generated, we’ll look at the group return on capital employed (ROCE) and compare to BP’s peers and previous periods. This measure will consider profit before interest and tax as opposed to BP’s Underlying Replacement Cost Profit.

In 2021 FY, BP had a ROCE of 7 after posting losses in 2020. This compares to Shell’s ROCE of 8.6 in 2021. This suggests Shell more efficiently regenerated profit than BP before this year’s rally in oil prices.

And BP is unlikely to improve its profitability efficiency versus its closest London-listed peer this year. The write down of their stake in Russian oil company Rosneft will hit full year profits to the tune of $25bn. The write down will reduce their asset base, but the proportion of BPs assets to profits means it will have a negative impact on their ROCE.

BP’s profit before interest and tax for the first nine months of 2022 was just $319m, compared to $13bn in the same period a year prior.

BP’s cash position

Although BP’s profit will suffer as a result of the Roseneft write down, BP’s operating cash generation has surged $10bn to $27bn in the first nine months of 2022.

This will provide significant cash for reinvestment and distributions to shareholders. This makes BP shares attractive on any weakness but the bumper returns of the last two years is unlikely to replicated next year.